As hybrid appraisals become more popular, particularly in rural and high-volume locations where time is more pressing, they may lead to complications due to the involvement of third parties in the appraisal process.
Implementing Hybrid Appraisals Under the FHFA
Recently, the Federal Housing Finance Agency (FHFA) has issued a request for input (RFI) from Freddie Mac and Fannie Mae to update and streamline appraisal processes, policies, and practices. The RFI requests input regarding hybrid appraisals, which the FHFA wishes to implement.
Hybrid appraisals, also known as bifurcated appraisals, are those that involve a third party. This person is normally a home inspector, appraiser trainee, or real estate agent. These parties are responsible for collecting data for both certified appraisers and lenders after data goes through the automated underwriting system.
Potential Problems with Hybrid Appraisals
The FHFA reasons that hybrid appraisals would help accelerate the appraisal process in both urban and rural areas where expediting is ideal. While hybrid appraisals may help make the process both more efficient and cost-effective, industry professionals are concerned that third-party involvement could lead to issues. Complications could result from the FHFA’s lack of sufficient standards at the federal and state levels holding non-appraisers accountable in the appraisal process.
In addition, the FHFA has encouraged more lenders to accept appraisal waivers if possible, which the agency hoped would help further expedite the loan manufacturing process. However, with this added convenience comes the heightened risk of input data inaccuracies, lenders gaming the system, and unexpectedly higher prepayment speeds on mortgage securities.
Making Changes to the UAD and Racial Issues
Several other topics are in discussion, along with hybrid appraisals through the request for input. In the RFI, the FHFA is also seeking input regarding the Uniform Appraisal Dataset (UAD). The agency began seeking to redesign the UAD in 2018 to align it with other Enterprise data forms.
In the process, the UAD redesign along with updates to the MISMO reference model is intended to help develop appraisal standards for all types of property.
The FHFA also recognized potential harm done to minority borrowers through appraisals. The University of Pittsburgh reported in 2018 that some appraiser interviews had violated Uniform Standards of Professional Appraisal Practice by allowing race and ethnicity to influence comparable home selection.
The RFI regarding possible changes to hybrid appraisals and other updates will remain open to comment through February 26, 2021.
